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• Minimum wage
• Bryce’s Law
• Privitization of trash collection
• Missouri’s Show-Me Checkbook
• Child-support payment compliance
• Economic development subsidy research

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• High school graduation rates
• Special taxing districts
• Legislative session recap
• Minimum wage
• Subsidy reform
• Course access

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• A dubious commission to study charter schools
• Public-sector collective bargaining
• Missouri’s charter school environment
• Regulation of short-term rentals
• Medicaid costs
• Municipal spending transparency

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This is a tale of two neighborhoods. Both Saint Louis-area neighborhoods are impressive and outwardly they look like twins. Hampton Park and Lake Forest sit on opposite sides of Hanley Road between Clayton Road and Highway 40, and they both boast large, stately homes. They are equidistant from the region’s central business districts. With two exceptions, they have the same level and quality of public services and the same tax rates. With so many similarities, you might assume property values would be the same. But you would be wrong.

Hampton Park and Lake Forest illustrate how different people finding different solutions to their housing and educational needs can have a substantial impact on housing prices.

The two exceptions noted above are the neighborhood school districts and the differing tax rates they impose. Both neighborhoods are subdivisions of Richmond Heights, but Lake Forest — which is located west of Hanley — is part of Clayton School District. In 2010, Clayton was the highest performing district in Missouri according to MAP scores. Over the past 10 years, residents have paid an average tax rate of $3.44 per $100 of assessed valuation. East of Hanley, Hampton Park is part of Maplewood-Richmond Heights (MRH) school district. In 2010, the state ranked MRH’s performance 315th out of 556 districts, making it an average district. Over the past decade, residents paid an average tax rate of $4.48.

Homes in Lake Forest are located in a higher performing school district and have lower tax rates than those across the street in Hampton Park. Do homebuyers react accordingly, and by how much?

Of course homebuyers adjust. According to a study of assessed valuations in the two neighborhoods, the difference between the prices paid for a theoretical house of the same square footage and lot size in the two neighborhoods is $109,000, or a little more than 10 percent. Homebuyers in Lake Forest are willing to pay approximately $109,000 more to live in a higher-performing school district with lower tax rates. Conversely, homebuyers in Hampton Park are paying $109,000 less to live in a more average school district with higher tax rates. Economists refer to this kind of difference as capitalization. It is the process that incorporates tax rates and other variables into the value of a piece of property.

Capitalization is a complex process, especially in regions that have as many taxing districts as Saint Louis. Prospective homebuyers typically take the time to research local school quality and tax rates, but they usually stop short of researching fire districts. Although homebuyers may not investigate them, the insurance industry certainly has. A home located in an area with a poor quality fire district will have higher insurance rates, and those higher rates will be translated into lower home prices. The combined wisdom of thousands of individual decisions is sorted into a price that is readily understood by everyone.

Capitalization works in both directions, often simultaneously. A great school district will lead to higher property prices, while the high tax rates used to fund those good schools will lower the price. The low crime rates of the outer suburbs will increase prices, while the higher commuting costs will lower prices. As for Lake Forest, the lower tax rates leads to higher home prices, and this may result in the same final tax bill as higher rates on less valuable property.

The higher tax rates and lower ranking school district do not automatically do economic harm to the residents of Hampton Park. A Hampton Park purchaser may intend to send their children to private or parochial schools and might be using the $109,000 discount to do just that. This appears to be the case for many residents, as the MHR school district offers no school bus service within Hampton Park. In effect, the $109,000 price difference can be viewed as a voucher toward the cost of private education, the payment of future (higher) taxes, or both.

The larger point is that with the variety of different cities, school districts, etc. that we have in Saint Louis County, there is an abundance of choices, making it more likely that everyone can find a suitable combination of taxes and services. Homeowners vote with their feet — by leaving cities that increase taxes too much or fail to offer quality services. This pressures cities to be efficient. That pressure and competition is reflected in property values, and that benefits all of us.

Gaudiet emptor — Let the buyer rejoice!

The post A $ 109,000 School “Voucher”: A Story of Tax Rates and School Districts appeared first on Show-Me Institute.

Property taxation levels — along with the quality of public services they support — affect the value of houses and other property through a process known as capitalization. All else being equal, a house with a higher property tax bill will sell for less than a similar house with a lower tax rate because the buyer will include the cost of higher future taxes in the offer. On the other hand, people are willing to pay more for a home in a good school district than for the same home in a poor school district. Both cases are examples of capitalization, and the purpose of this case study is to examine its effects on housing prices in the municipality of Richmond Heights, Missouri.

There are two categories of taxable property in Missouri: “real” and “personal.” Real property is land and buildings. Personal property is vehicles and equipment.  Real property is subdivided into three subclasses: agricultural, residential, and commercial. Both the method of assessing real property and the taxation levels levied upon it depend on the subclass.

The assessment of real property is divided into the value of the land itself, and the value of the improvements (e.g. the house or office building) on the land. The values of the land and improvements are added together to form the appraised value. An assessment ratio is then applied to the appraised value to determine the assessed, or taxable, value. The assessment ratio is the multiplier applied to the three subclasses of real property. The ratios are 32 percent for commercial property, 19 percent for residential property, and 12 percent for agricultural property.

However, Missouri law dictates that both the assessment ratios and the tax rates be uniform for the land and the improvement. For example, take two neighboring homes, each with a total appraised value of $200,000.  If one has land valued at $80,000 and a house valued at $120,000, and the other has land valued at $60,000 and a house valued at $140,000, the total taxes paid will still be exactly the same. Please see Table 1 in the appendix for an example of how various appraised values translate first to assessments and then to tax dollars.

Related Links

Companion Policy Study

Commentary: A $ 109,000 School “Voucher”: A Story of Tax Rates and School Districts

Commentary: Changes to Property Assessment System Would Improve Fairness

Video: Property Taxes in Missouri: Police, Fire, Municipal Bands?

The post Homes, Taxes, and Schools: The Effects of School District Rankings and Property Tax Rates on Property Valuations in Richmond Heights, Missouri appeared first on Show-Me Institute.

Property taxes are one of the three main types of taxation in the United States, along with sales and income taxes. Like any tax system, property taxes have benefits and costs. The primary benefit is that they are the most effective mechanism for connecting the public services taxpayers use with the tax dollars they pay. Research has determined that the quality and cost of the public services within an area are capitalized into the price of the property. People make choices on where to locate based on their various demands for public services and their different capacities for paying taxes. Local governments respond to those various demands by implementing differing menus of taxation and public services that appeal to different members of the public.

Related Case Study

Commentary: A $ 109,000 School “Voucher”: A Story of Tax Rates and School Districts

Commentary: Changes to Property Assessment System Would Improve Fairness

Video: Property Taxes in Missouri: Police, Fire, Municipal Bands?

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Missouri public policy has its problems. Lawmakers have a terrible habit of trying to pick winners and losers in the market, even though they have such a bad track record of doing so. We’re relying on government to make the choices that individuals should be making for themselves in the private sector. Lawmakers are addicted to targeted tax credits and tax-increment financing (TIF) — even though these programs repeatedly fail to deliver on their promises.

Despite this state’s problems, Missourians have a lot to celebrate in public policy. Many great things are going on here. Missouri has fewer occupational license requirements than other states, which means that Missourians are more free to earn a living. Plus, Missouri has low state taxes on booze, cigarettes, and gasoline. It also has the Hancock Amendment, which limits state spending and requires that voters have the final say on tax hikes. (Wouldn’t it be great if the Hancock Amendment existed at the federal level?)

We’re taking many steps in the right direction toward limiting government and protecting individual liberty. For example, Missourians were among the first to oppose the federal takeover of their health care, and we haven’t given up. As another thing I find promising, the Saint Louis Land Reutilization Authority (LRA) is accepting more offers to buy vacant property (thanks largely to the efforts of my colleague Audrey Spalding).

I’m confident that Missouri, and other midwestern states, will be leaders in limiting government and getting the economy back on track. This change will be driven by individuals acting entrepreneurially in the private sector, however — not by the hand of government.

See you later, Show-Me State.

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Audrey Spalding, Tom Duda, and I spent yesterday afternoon driving around the area north of Lambert airport. We spotted quite a high number of empty warehouses. 

However, given the number of vacant warehouses and “Will build to suit” signs on empty lots, it seems to me that there is already a lot of capacity. I wonder: Where’s the demand for warehouses? If the ones that are currently near the airport are empty, why do legislators want us to spend $300 million on more of them?

It reminded me of downtown Saint Louis, actually — despite all of the “space available” signs on the office buildings, government officials still want to subsidize new construction downtown.

We’ll release a video soon about our trip, where we’ll talk more about this issue. We’ll try to get it edited and uploaded to the blog as soon as possible. Stay tuned to the Show-Me Institute!

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At the 11th hour, legislators tacked on this misguided proposal to another bill that would limit tax credit expenditures. The end result is a 330-page bill that would accomplish little other than take benefits from some — in this case, the low-income elderly — and instead award benefits to private developers in Saint Louis.

In a recent state Senate committee hearing on the China Hub subsidies, Sen. Ron Richard opined, “I’ve got business people and friends of mine that live in Saint Louis that are begging for something new and creative. So we take a chance.” Unfortunately, when he advocated trying something new and creative, Richard did not suggest that the state create an environment that encourages all Missourians to be creative and entrepreneurial. His plan entails quite the opposite: gambling hundreds of millions of dollars, and leaving Missouri taxpayers on the hook.

The China Hub subsidies have three critical problems. First, the bill rests on the flawed notion that legislators are all-knowing, and that they have the ability to successfully pick and choose the industries, types of employment, and goods and services that should exist in Missouri. Second, the state government is already short on funds, and it cannot afford to give away hundreds of millions. Revenue lost to tax breaks for favored industries would need to be replaced by increased debt, reduced government spending, or — more likely — imposing a higher tax rate for all of Missouri’s less fortunate taxpayers.

Third, there has been no in-depth study of the costs and benefits of the proposal, nor do we know the level of commitment from foreign firms. The Saint Louis Regional Chamber & Growth Association recently released an eight-page brief about the China Hub subsidies, but it is by no means in-depth. It merely extends the unsupported assumptions that were built into the legislation.

Major questions remain to be answered. In particular: What’s the rush? We don’t know with certainty what the legislation will cost, or what business it may bring. Why should state government pick an economic winner, when it has such a poor track record for doing so? Also, how do we know that cargo warehouses have the ability to boost the Saint Louis area economy?

Legislators like Richard have a hunch, and they want taxpayers to bear the risk. As Harvard economist Edward Glaeser notes: “Too many officials in troubled cities wrongly imagine that they can lead their city back to its former glories with some massive construction project …”

Unfortunately for taxpayers, the strategy taken by state legislators is not a new one — nor is it effective. The China Hub subsidies rely on the same old policies that the legislature has tried before. Why will this time be any different? Within the last decade, we spent $1.1 billion on a new runway at Lambert, and it sits largely unused. Missouri lawmakers say that they want to rein in tax credits, but then turn around and award even more.

If lawmakers were serious about “taking a chance,” they would do something that is actually new and different, such as reducing the state income tax or eliminating tax credits altogether. This would create a more favorable playing field for all businesses — not just a select few. Is there anything creative and new about subsidizing the construction and operation of warehouses?

The best way for Missouri to grow the economy is to provide a business climate that encourages individuals to develop new ideas. If government officials genuinely want to try a new strategy, they should stop attempting to control the state economy from the top down. Creating another layer of bureaucracy — no matter how well-intentioned — will only impede this creativity and stifle growth.

Entrepreneurs in Missouri will seize upon the opportunities around them as soon as the government gets out of their way.

Christine Harbin and Audrey Spalding are policy analysts at the Show-Me Institute, an independent think tank promoting free-market solutions for Missouri public policy.

The post The ‘China Hub’: Another Flight of Fancy? appeared first on Show-Me Institute.

It began with a flurry of blog posts and some radio gigs, and it grew from there. Late last month, Audrey and I stopped by The McGraw Milhaven Show on The Big 550, KTRS in Saint Louis, and the Mike Ferguson show on 93.9 FM “The Eagle” in Columbia. We talked about how the Aerotropolis proposal would be more of a boondoggle than an investment.

A little more than two weeks ago, Audrey and I both testified about the Aerotropolis proposal before the Missouri Senate Jobs, Economic Development and Local Government Committee. The written version of our testimony is available on our website. You can also watch the video of our testimony here on Show-Me Daily:

Note the part where Sen. Ron Richard said, “I’ve got business people and friends of mine that live in Saint Louis that are begging for something new and creative. So we take a chance.” He has it completely backward. Tax credits aren’t new and creative. Neither is draining more money into Lambert. Aerotropolis is more about subsidizing business as usual than taking a chance.

Audrey and I penned an editorial explaining how Sen. Richard was mistaken. It ran in the Southeast Missourian and the Columbia Missourian this week.

Late last Monday night, lawmakers made many changes to the bill. The amount of tax credits dropped from $480 million to $360 million. We’re still talking about a lot of money, though. State lawmakers combined Aerotropolis with a bill that would otherwise limit tax credits. It’s schizophrenic public policy, and it doesn’t make sense. I’ve called for limiting tax credits for a long time, so I am disappointed that state lawmakers are negating the benefits of limiting tax credits by combining them with a policy that would expand them. It’s like the Dr. Jekyll and Mr. Hyde of tax credit legislation.

Next, we split up to reach more people. Audrey went back on the McGraw Milhaven Show on The Big 550, KTRS on Wednesday. The audio archive of the interview is available here. Audrey reviewed how the bill has changed, and how it will do even less to encourage international trade. Meanwhile, I spoke to KMOX radio about how it’s a bad deal for taxpayers.

Yesterday morning, I was a guest on the Charlie Brennan Show on KMOX. I had a great time. I talked Aerotropolis with: Rhonda Hamm-Niebruegge, director of Lambert–St. Louis International Airport; Rodney Crim, director of the St. Louis Development Corporation (SLDC); and Steve Johnson, executive vice president of economic development for the St. Louis Regional Chamber and Growth Association (RCGA). An archive of the audio is available online. I argued that, if building cargo warehouses next to the airport is such a good idea, private entrepreneurs will pick up their shovels. They would have broken ground already — they wouldn’t be waiting around for tax credits.

Later that day, the Show-Me Institute’s executive director, Brenda Talent, released an open letter to Missouri Speaker of the House Steven Tilley. She encouraged him to remove the Aerotropolis bill from the current legislative agenda. I wonder: What’s the rush? Why are state legislators frantic to get Aerotropolis enacted in the final days of session? What’s the harm in studying the issue a bit longer?

This morning, I enjoyed talking with Steve Helms on “Morningline,” on KWTO AM 560 in Springfield. We discussed the fact that the Lambert airport is already drowning in debt — to the tune of more than $900 million. Much this is left over from the failed $1.1 billion runway expansion from not too long ago. I wonder: Is draining even more money into the airport the best use of taxpayer dollars? Couldn’t Steve’s listeners in Springfield spend their tax monies on things closer to home?

Even though it’s Friday, we’re not taking a break from our media outreach. KWMU Radio ran a commentary of mine a couple times today, and the St. Louis Business Journal ran an editorial written by Audrey Spalding and me.

I wonder what next week will bring for Aerotropolis. Stay tuned to the Show-Me Institute team — we’ll continue to track the issue and provide up-to-date analysis on what it will mean for Missourians.

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I’ll be on just after 8:15 a.m. Tune your radio to KWTO AM 560, or listen live online.

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Transcript

Audrey Spalding: [testimony]

John Lamping: The name of your organization again?

Audrey Spalding: The Show-Me Institute

Bob Dixon: I was just curious in listening to your testimony there about the cost … if you did any sort of analysis with respect to the opportunity cost of — let's say we don't do it, and it goes somewhere else.

Audrey Spalding: I have not done that study. We haven't had time to do that study given that the ”Aerotropolis” tax credits, the amounts in particular, were recently agree upon. I think, I would assume: 1) that the tax credits are necessary to the creation of an international hub; and, 2) that such an international hub would be successful. Regardless, I think anyone can agree upon the fact that there is at least a possibility that this is not successful.

Eric Schmitt: I have a follow-up. Mr. Dixon?

Bob Dixon: I would be interested to, if you're going to present a study like that, I'd be interested to see some sort of analysis on that. Because a lot of times we do things, recently we sent to the governor's desk a phase-out of the corporate franchise tax, but I don't think that your organization was here to testify against that because of the cost. I realize it's a different issue, but it seems to be an opportunity that, if it's lost, we could certainly lose out, and I'd like to see us calculate that cost. Thanks, Mr. Chairman.

Eric Schmitt: Thank you. And I want to, first of all I want to thank you for coming up here and testifying. I totally disagree with your analysis. You made reference to the $480 million. Are you aware of how long it would take for the $480 million, if everything hit, how long that would take?

Audrey Spalding: Yes, I realize that would not hit immediately.

Eric Schmitt: Do you know how long of a period of time it is?

Audrey Spalding: I believe that it's more than a decade.

Eric Schmitt: Fifteen years. So, if everything hits, if we hit the freight-forward piece, if we're building facilities, if we have industry that we don't have in our state right now, and the only way that they get any of the credit is: they invest in a $20–25 million building, they're operating, they've created jobs, we have the kind of economic activity that we were seeking with the legislation that we don't have, I do not understand how an organization that seems to at least state that they're for economic growth cannot get behind an idea of incentivizing people to come and do things that we just don't have. So, my question is, if this is a real possibility, is it worth doing? If China, which is first-in, is gonna move, and wanna have the ground, which they don't have in Chicago, is that worth having in our state?

Audrey Spalding: Well, I think perhaps we approach this from a different, each from different standpoints, obviously. Now, we're talking here about this proposed international hub, and of course there have been talks of a China hub in other countries, so this would be a wonderful idea. Given that those talks are occurring, isn't it also at least possible that Saint Louis–area developers and other such entrepreneurs would be entrepreneurial enough to seize upon such an opportunity without state help?

Eric Schmitt: But if you don't have, my question to you is, if it doesn't happen, and I know you're seeking some sort of letter of, memorandum of understanding or something. If it doesn't happen, none of this revenue that we would be foregoing — because that's what it is, we're foregoing revenue — which I find it interesting, actually, as a Republican, I hear a lot … really, what we're doing here is we are reducing the tax liability to create and to have an industry in our state that we don't have. I don't find that offensive in any way. People campaign a lot about this, about job growth, about opportunities, about having and creating an economic environment in our state that's conducive to the creation of quality jobs — well, here it is. And being critical of a new idea that's bold isn't anything new or isn't anything unique. I'm sure the steamboat captains of the late 1800s thought that the railroads were something that threatened their interest, or that people would be inconvenienced as their homes or property might be bought out to make way for the new mode of transportation. But guess what? One city got it right. Chicago got it right and Saint Louis was standing on the sidelines. I don't want to be remembered … there's a mural in the Senate, I spoke of this last time, of the first senator, Sen. Benton, who was talking about having that westward expansion of the railroad from Saint Louis to the west coast, and we missed it, OK? What I'm saying this session is: This is important enough that I think we need to stand up for growing the pie. And I know there's going to be plenty of people that poke holes and have criticism, but that's what critics do, OK? It's our job, up here, to seize on an opportunity to grow our economy, and there couldn't be anything more real or more immediate than being in the center of an international trade hub. Any great civilization, any great city has been at the confluence of routes, of commerce, of industry. That's what we have an opportunity for, here. And just because we want to live in an ivory tower and we want to give great speeches about what things might look like if we lived in some utopian world — we don't live in that world. We don't live in that world. So we can choose to compete, or we can be economic isolationists and we can build a great wall around our state. I think it's our job in this committee and in this Senate in this session to break down those walls, to open up trade routes, to create opportunity for Missouri businesses, the ag community. We heard from the pork producers today. This is an opportunity that we haven't seen in this state. So I appreciate, I really do appreciate you coming up here. I appreciate your different point of view. I've seen some of your articles. I haven't had a chance to visit with you; we haven't had a chance to talk about the legislation. I'd be happy to do that with you more. I know that you were probably coming in to a room where there's a lot of support, so I do appreciate that, but I respectfully disagree. Thank you. Any other questions?

Victor Callahan: Railroads were federal stimulus.

Eric Schmitt: Any other witnesses in opposition?

Christine Harbin: [testimony]

Eric Schmitt: Before I go, I just want to make note that it sounds like you're advocating more money for social spending, and, if I recall correctly, the Show-Me Institute was against the autism bill last year.

Christine Harbin: I'm sorry?

Eric Schmitt: The autism bill. I believe the Show-Me Institute had an editorial piece against the autism legislation last year, so I'm glad to see that the Show-Me Institute is advocating more money being spent on social programs now.

Christine Harbin: That wasn't my implication and I didn't work on that particular thing.

Eric Schmitt: Any questions? Sen. Dixon.

Bob Dixon: Earlier in your testimony, you referenced my question of the previous witness, and then in your reference to the St. Louis Business Journal, I believe in their editorial, before I ask you a question I'll just mention: I probably take greater offense at being called "out-state." I'm from Springfield, and I don't have … you know, I'm not in the Saint Louis area, and I support this legislation wholeheartedly because I think it's good for the entire state. But that, I'm more concerned about that mentality that we're not in-state, we're out-state, than I am anything else, because we don't need those kind of divides in Missouri, and that's part of what has hampered progress in the past. But my question specifically is, going back to what I asked of the previous witness, if you would please clarify what you said pointed to that question, because I still don't see anything where we're talking about the lost opportunity, and where that cost has been calculated. And then, specifically what services — and you used the word "services" — would be. That also is a concern, but I won't go into a big statement about that, because I don't believe the state provides "services," or if that fits. But if you could enumerate on what services you think we need to be funding with those "opportunity dollars," if you will, and then, also, how that testimony would have addressed my previous concern.

Christine Harbin: Sure. When I say "services," I just mean other government programs. I'm speaking in very general terms. I'm talking about education …

Bob Dixon: Bureaucracy.

Christine Harbin: Yeah, building roads, fixing potholes, stuff like that.

Bob Dixon: Those basic things I can agree with are functions, but if we're talking about "services," there's a lot of people roaming these halls talking about benefits for this that and the other, which, in my opinion, are not a function of state government. To that point, that answers that question. Specifically to the lost opportunity cost, if you could address that.

Christine Harbin: Certainly. Well, I would say that it's impossible to calculate with certainty what could have been in the absence of this policy. However, what I described in my testimony is … When you have a large public works program like this, when you have a large tax credit program like this, people are forced to, taxpayers contribute more of their earnings, a greater percentage of their earnings towards the program. And so, as a result, it means that they have less money to spend in the private sector.

Bob Dixon: Potentially.

Christine Harbin: Potentially. Because otherwise, they could see a reduction in services, too. It's some combination.

Bob Dixon: Some of that, though, I would have to say, and I'll yield back to the chair, but some of that also comes from the concept that any money not collected by government is actually just tax money that we didn't collect, which I fundamentally disagree with that whole mindset. A tax credit is not, and the courts even have ruled on that in various cases, one in particular, but those are not state dollars.

Christine Harbin: Agreed. I agree that it's not state dollars. I'm just saying that, as a consequence of programs like this, Missourians, taxpayers, have less money to spend themselves.

Bob Dixon: Potentially.

Christine Harbin: Potentially. It's difficult to calculate with certainty how much is taken out, but they're going to eat at fewer restaurants, they're going to spend fewer nights in hotels …

Bob Dixon: The very strong likelihood also exists that, in the long term, because of the economic growth, we could see substantially — and perhaps exponentially — more.

Christine Harbin: Agreed.

Bob Dixon: OK. I just wanted to make sure that, and again, I would like to emphasize that I would love to see some sort of a more exhaustive study on that end. Thank you. Thank you, Mr. Chairman.

Eric Schmitt: Sen. Richard.

Ron Richard: Mr. Chairman, just briefly, as someone who's done in Joplin, the lady mentioned my city, who's done most of the economic development for the Saint Louis region, us poor people that are barefoot and corncob pipes have done more to back up Saint Louis and the community in Kansas City than frankly some of the Saint Louis–elected people. And the reason we have is because we understand what's at the other end of the highway, which is Saint Louis. And as they progress and do well, the rest of us will, too. Everything that the Show-Me Institute is for, I'm against, and everything they're against, I'm for — and we're both conservatives, I don't understand that. I mean, we fought for organization on the Bombardier in Kansas City, and it was a stretch, didn't work. This may be a stretch, but I've been to Saint Louis somewhere almost twice a month, as in Kansas City, and I've got business people and friends of mine that live in Saint Louis that are begging for something new and creative. So we take a chance. And I think the chairman has a great opportunity here to take a chance on something. If it doesn't happen, nothing is given away — no tax credit. Granted, the lady's right, tax credits may be a little overwrought, and I think there's a mechanism to address that, and the chairman has a plan for that. But I will say that, until Missouri is ready to take a chance on something new, we'll just be a lackluster state. We will have all our kids move away, our universities will disintegrate, our highways will disintegrate, our schools don't have to worry about opening ‘cause there'll be no one going to school, ‘cause there won't be tax money one of these days. So, I respect the lady's opinion, again I think we take a chance, I think we move forward, and I support the chairman and I will support Saint Louis every time I get a chance.

Eric Schmitt: Thank you. Any other questions? Sen. Lamping.

John Lamping: I'm curious about a couple things, actually. First of all, you were kind enough to quote the St. Louis Business Journal, and I'm curious to know what the Show-Me Institute's opinion would be on their proposed outcome, which is, we simply offer $60 million tax credit to freight forwarders. So what's your opinion of that idea?

Christine Harbin: I didn't study that particular proposal.

John Lamping: Well, that was the second half of the editorial you just quoted.

Christine Harbin: Yeah, sorry. Similar to how you said earlier in response to the question and answer session with Audrey: You're either for it or you're against it. I testified in front of the Tax Credit Review Commission last September. And I have been a very vocal supporter of the total elimination of targeted tax credits in Missouri. And that holds true here, too. I think that Missourians would be better off if they were able to keep their earnings and spend it themselves in the private sector. So, I do not support kind of a halfway …

John Lamping: So you like the idea of suggesting that some of the Business Journal editorial is correct in pointing out the fact, in your opinion, that the rest of the state subsidizes it, but you disagree with the conclusion they come to — you don't support.

Christine Harbin: I agree with their criticisms of the project. I don't fully support their policy recommendation.

John Lamping: Second thing, probably unlike most of the members of this board, I appreciate you coming forward today. As someone for who economics is kind of a hobby, I study … I'm a member of the Show-Me Institute, as well as many other think tanks, as I like to stay abreast and current of different thoughts and ideas. But one of my favorite economic terms that all my teachers used over and over again, and us in business and finance always laughed when we think about this, is this concept of all things being equal. And that's something that, your study of economics sounds like from school. And that's where the theoretical world comes in and they say, "Well, all things being equal, then, well, here's our supply line, here's our demand line, we're going to now go forward with our great discourse and our great study, assuming all things are equal." I think what the chairman spoke to today is the reality that the world, all things are not equal. There's the theoretical and there's the reality. And as much as I enjoy sitting down and going through the theoretical. I think that it helps for, and again, maybe that's your role. Maybe that's your role in the discourse: It's to be the theoretical go-to. Unfortunately, in this capitol building, it's all about the reality and the real, and all things are not equal. And when it comes to economic development in and around this region, clearly all things are not theoretically perfect. So, I appreciate you coming forward, it's a really interesting part of the testimony, and I look forward to your next publications.

Christine Harbin: Can I respond to that?

Eric Schmitt: Sure.

Christine Harbin: To that last point, I agree that economics is separate from natural sciences because it can't really be studied in a laboratory, we're kinda going through it, you know, as we are. However, I think that my focus here is very reality-based. I think that the idea of this particular policy awarding close to half a billion dollars in tax incentives to a small group that is … The hope is that it will encourage trade, but I think the reality is that it won't.

Eric Schmitt: OK, let me follow up on that. If it doesn't, do we expend any tax credits?

Christine Harbin: If it doesn't encourage trade?

Eric Schmitt: Correct.

Christine Harbin: You mean after we go through the policy? After we enact it?

Eric Schmitt: Look, I do want to — and I do appreciate you coming out — I just want to make, I want to understand, know that you understand the bill …

Christine Harbin: Oh, I read it.

Eric Schmitt: So what is your understanding of how the tax credits are awarded for facilities?

Christine Harbin: It was what Audrey outlined. We offer tax credits to support the subsidization of these warehouses.

Eric Schmitt: But how does that work? How does that work?

Christine Harbin: I don't have the text of the legislation in front of me.

Eric Schmitt: Well, you're testifying against the bill. OK? And I'll just explain how it works, which is, you build a building. It's a $25 million building, you operate it, you get a portion, it's screened over five years, each year you have to prove that you're getting the economic activity and the jobs. So, if those buildings never get built, my point is, if the buildings never get built, and we don't have the trade, there's never any tax credit. So, it's a very different reality from what you're explaining, which is, we're spending 500 million and hoping that people come. The reality is, if they come, at that point we have the infrastructure because of the trade. So it's just a, it's different, it's a different sequence of logic here.

John Lamping: Mr. Chairman, my guess is, what she really means to say is that she's against the Business Journal's recommendation to just do the freight-forward piece. ‘Cause that would then show no evidence of successful …

Ron Richard: [Sen. Richard's microphone was turned off, so this portion is inaudible]

John Lamping: Maybe we'll find out in Friday's edition.

Christine Harbin: Well, my response is: If it's such a great idea, then there's a lot of entrepreneurs in Saint Louis with great ideas, with multiple skills — let them take risks and bear the burden.

Eric Schmitt: So, it'll just happen?

Christine Harbin: Yeah, incremental change.

Eric Schmitt: Sen. Dixon.

Bob Dixon: Yeah, I just want to follow up on the comments from earlier, I wanna make it very clear. I failed to thank you for coming. I want to make it very clear that I really do appreciate you coming, as several others have said, and I appreciate the Show-Me Institute for the stands they've taken on several things, principled stands. We'll just have to agree to disagree on this one, but it takes a lot of courage to come and testify in a room full of people that are in favor of something, testify against it. And I do appreciate it.

Christine Harbin: Thank you.

Eric Schmitt: Any other questions? Thank you again. And I really, I do appreciate it. Obviously I have … I believe in it. You're passionate; I'm passionate; that's what this process is all about. So, I do appreciate you taking the time to come up to Jeff City; it's not easy to come in and express at one of these.

Christine Harbin: Thank you.

The post Testimony on the ‘Aerotropolis’ Bill appeared first on Show-Me Institute.

Show-Me Institute Policy Analysts Audrey Spalding and Christine Harbin will be on the Mike Ferguson show on Columbia’s 93.9 FM “The Eagle” around 4:30 p.m. today. We will talk about the testimony that we delivered before the Missouri Senate Jobs, Economic Development and Local Government Committee on Wednesday, about the Aerotropolis proposal.

The written version of our testimony is available on our website. This is a topic that we have discussed frequently lately here on the blog.

The post Audrey Spalding and Christine Harbin Talk Aerotropolis With Mike Ferguson on the Eagle 93.3 FM This Afternoon appeared first on Show-Me Institute.

Here’s the back story: Evidently, government officials decided that two runways weren’t enough for Lambert. Construction on the runway began in 1998, and it continued despite several setbacks. (As the Riverfront Times aptly put it, “Still, the bulldozers rolled on.”) Following the 9/11 terrorist attacks in 2001, Trans World Airlines went bankrupt and American Airlines bought it. In 2003, American Airlines cut its operations in half at Lambert, and revoked the airport’s hub status. In the meantime, people flew far less than projected.

Unfortunately for Missouri taxpayers, this story doesn’t have a happy ending. The new runway did not reduce delays. Plus, with each passing year, Lambert saw fewer takeoffs and landings. Just one year after the new runway was built, only 5 percent of flights used it. Several airlines asked to avoid using the new runway altogether. Because it was built so far away from the terminal, planes had to taxi as many as three miles to the terminal, burning more fuel.

Not only did the project fail to bring the traffic it promised, it tore apart the city of Bridgeton. Government officials used eminent domain to move seven major roads, kick 6,000 people out of their homes, and bulldoze six churches and four schools in order to make room for a third runway.

Government does not have a good track record in steering economic development — particularly in the Saint Louis area. Studies repeatedly show that they fail to produce the results that they promise. Most recently, the East-West Gateway Council of Governments concluded that the Saint Louis government has provided $5.8 billion in subsidies to private development in the city, but doesn’t have much to show for it.

Expanding the airport didn’t work then, and there’s no compelling reason to believe that it will work now. (Remember: No formal agreement has been signed, nor has any study been completed.) Lawmakers are in danger of repeating the same mistakes, so they should take a longer look at this.

We have a shared goal: an economy that is thriving and attractive to new businesses. Lawmakers are sticking the same old policies (tax credits!) — even though they have been shown to fail. If lawmakers in Missouri were serious about growing the economy, they would abandon the failed policies of the past and take a different strategy.

The post Airport Expansion Failed in the Past; Why Will This Time Be Any Different? appeared first on Show-Me Institute.

The post ‘Aerotropolis’ Tax Credit Bill Lacks Empirical Support, Fraught With Hidden Costs appeared first on Show-Me Institute.

Here’s the issue: Shortly after the announcement that Liberty Mutual would receive tax credits for creating new jobs, the company gave pink slips to 45 employees. The company told the affected employees that they could apply to lower-paying and lower-level positions.

Despite the layoffs, Liberty Mutual is on track to receive $1.6 million in tax credits through the Missouri Quality Jobs Program, because it can show — at least on paper — that 100 “new” jobs exist at its Safeco service center in Fenton.

Is this the kind of economic development that we want in Missouri?

It is important to note that Quality Jobs is the worst-performing tax credit program in Missouri, yet lawmakers continue to expand it. According an April 2010 report from the state auditor, lawmakers underestimated the cost of the Quality Jobs program by more than $100 million over four years. This didn’t stop them from raising the annual cap from $12 million to $80 million in 2009. That’s an increase of 567 percent!

The Tax Credit Review Commission and the Missouri state auditor have looked at tax credit programs in the Missouri, and they both have called on lawmakers to limit them. However, lawmakers have not taken this advice. Policymakers like to talk tough on tax credits, but their actions and words don’t match up. This is bad news for taxpayers, who have to foot the bill.

Missouri has serious budget problems. If lawmakers were serious about fixing Missouri’s fiscal health, they would implement measures that limit tax credits, like stricter caps and sunset requirements.

The post Smoke and Mirrors in Creating Jobs in Missouri appeared first on Show-Me Institute.